STATE OF CALIFORNIA
FRANCHISE TAX BOARD
QUARTERLY MEETING
THURSDAY, DECEMBER 2, 2010
FRANCHISE TAX BOARD
9646 BUTTERFIELD WAY
TOWN CENTER, GERALD GOLDBERG AUDITORIUM
SACRAMENTO, CALIFORNIA
1:30 P.M.
REPORTED BY: SANDRA VON HAENEL
CSR NUMBER 11407
1 APPEARANCES
2 FRANCHISE TAX BOARD:
3 Deputy Controller Marcy Jo Mandel, Acting Chair
Hon. Betty T. Yee
4 Jay Chamberlain for Member Ana J. Matosantos
5
6 FRANCHISE TAX BOARD STAFF:
7 Colleen Berwick
Susan Borgman
8 Patrick Kusiak
Ben Miller
9 Brian Putler
Steve Sims
10 Selvi Stanislaus
Delinda Tomagni
11 Geoffrey S. Way
12
13 TAXPAYER BILL OF RIGHTS PROPOSALS:
14
Roland Boucher - United Californians for Tax Reform
15 David Feldman - ZF Micro Solutions
Vicki Mulak - CSEA
16 Gina Rodriquez - Spidell Publishing, Inc.
17
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1 SACRAMENTO, CALIFORNIA
2 THURSDAY, DECEMBER 2, 2010, 1:30 P.M.
3 ---oOo---
4 ACTING CHAIR MANDEL: Good afternoon.
5 This is the scheduled time for the meeting of the
6 Franchise Tax Board.
7 Would the secretary please call the roll to determine
8 that a quorum is present.
9 MS. BERWICK: Member Yee?
10 MEMBER YEE: Here.
11 MS. BERWICK: Department of Finance Chief of Financial
12 Research Jay Chamberlain --
13 ACTING MEMBER CHAMBERLAIN: Here.
14 MS. BERWICK: -- for Member Matosantos?
15 ACTING CHAIR MANDEL: And he's still here.
16 MS. BERWICK: Deputy Controller Marcy Jo Mandel for
17 Chair Chiang?
18 ACTING CHAIR MANDEL: Here.
19 At least two members or their designated
20 representative being personally present, there is a quorum
21 and the Franchise Tax Board is now in session.
22 The public has a right to comment on each agenda item.
23 If there are members of the public wishing to speak on an
24 item, please come forward when that item is called. You'll
25 have three minutes to address the Board.
3
1 The first item that we have today is the approval of
2 the minutes of the September 1st, 2010, Board meeting.
3 Have the members had a chance to review the minutes?
4 Are there any questions?
5 MEMBER YEE: Yes. No questions.
6 I'll move approval.
7 ACTING CHAIR MANDEL: Approval of the minutes has been
8 moved. Is there a second?
9 ACTING MEMBER CHAMBERLAIN: Second.
10 ACTING CHAIR MANDEL: Second.
11 And any objection?
12 I'm not objecting.
13 So, hearing no objections, the minutes are approved.
14 The second item that we have is Legislative Matters.
15 We have some legislative proposals. Brian Putler will give
16 the staff report, and these are items that will call for
17 Board approval. And when it comes to approval, the
18 Department of Finance will abstain.
19 So, Brian, would you go ahead. I don't have any
20 speakers on this. So do you want to go ahead and just run
21 through them.
22 MR. PUTLER: Okay. Thank you very much.
23 Brian Putler. I'm the department's legislative
24 director.
25 There are five proposals for the Board's consideration
4
1 this year. The first three are FTB staff proposals, and the
2 fourth and fifth proposals are Taxpayer Bill of Rights
3 proposals that were submitted by Gina Rodriquez of Spidell
4 Publishing. So I will go through them and give kind of a
5 summary of each of them along with a recommendation.
6 The first proposal, Proposal A, is clean up to an FTB
7 sponsored proposal from five years ago which was enacted.
8 This was seen as a consumer protection item. There are
9 three parts to this proposal.
10 The first one, current law allows the FTB to suspend
11 tax professionals, such as CPAs, enrolled agents, or
12 attorneys from practicing before the FTB when they are first
13 suspended by the Treasury Department from appearing before
14 the IRS.
15 California law also allows a hearing on the narrow
16 issue of whether the federal action was clearly erroneous.
17 The current law applies the Administrative Procedures Act to
18 these hearings, which means the rules of evidence apply, and
19 also that the hearings are presided over by an
20 administrative law judge.
21 The proposal is to except this hearing from the
22 Administrative Procedures Act, which means that it would
23 become an informal hearing before FTB staff and that the
24 rules of evidence would not apply.
25 The staff believes that this change would match the
5
1 rigor of the hearing procedural requirements with the narrow
2 scope of a hearing. Practitioners would still be allowed
3 judicial review if they were unhappy with the decision by
4 FTB staff. And I think it's notable for the Board to note,
5 too, that most suspended practitioners of the IRS have
6 either been convicted of a crime or have lost their license
7 at the state level with the Board of Accountancy or with the
8 State Bar.
9 So, of the 139 practitioners who are presently
10 suspended by the IRS and waiting to be acted upon by the
11 FTB, only two of them had full-blown hearings at the
12 Department of Treasury, which means that apparently all the
13 rest of them were handled either by the Board of Accountancy
14 or also by the State Bar.
15 So one other thing that I would like to point out with
16 regard to this proposal, too, is that the lobbyist for the
17 State Bar informed me yesterday and authorized me to let the
18 Board know, because she is not able to attend today, that
19 the Bar is neutral on the proposal as it currently exists.
20 So then the two other parts of this proposal, one has
21 to do with when interest begins to run on a penalty that
22 exists in current law. So the proposal would make clear
23 when interest begins to run.
24 And then the third part would allow the FTB express
25 authority to post the names of practitioners who are
6
1 suspended on the FTB's website. So that's Proposal A.
2 Would you like me to just go through them all?
3 ACTING CHAIR MANDEL: Do you want to go through them
4 all first?
5 MEMBER YEE: Yes.
6 MR. PUTLER: Okay.
7 So then Proposal B has to do with exempt
8 organizations, and this also has three parts to it, but the
9 staff would like to pull the second part of it. So what
10 remains is, right now, when an organization seeks to be
11 exempt in California, exempt from payment of tax, they can
12 either file a Form 3500 or a 3500A. And the 3500 is a form
13 they file when they don't have their federal tax exemption
14 granted yet. 3500A is filed when they already have a tax
15 exemption. And California law then requires the FTB to
16 automatically find them exempt.
17 So, right now for those two forms, the Form 3500 has a
18 fee of a $25 fixed charge. So the proposal, we ask -- that
19 fee has been in law since 1983, and it's never increased --
20 that the proposal is to increase that fee to $100. And then
21 the 3500A is a relatively new form, there is no fee
22 associated with it, and the proposal is to raise that fee
23 to -- or excuse me -- to impose a fee now of $35.
24 And then the other part of the proposal would revise
25 the due date for payment of a $10 fee that accompanies the
7
1 filing of an annual report. It's called a Form 199.
2 And the Proposal C has to do with the recent enactment
3 of law of giving authority to the EDD to start collecting
4 Department of Industrial Relations collections. Those
5 collections have been done by the FTB for a number of years,
6 but the department's computer system is now very much
7 outdated and the Legislature has authorized a new computer
8 system at EDD which is supposed to be up and running
9 sometime next year.
10 Last year, or rather this year, the Legislature
11 enacted the authority for EDD to start collecting, but they
12 did not likewise repeal off the FTB's authority to now do
13 collections. So all this proposal would simply do is end
14 FTB's authority once EDD's computer system is operational.
15 Then the remaining two proposals, that's D and E, as I
16 said, were recently offered by Gina Rodriquez, and both of
17 these have to do really, in a large sense, with NOL
18 carrybacks. And carrybacks are something that were recently
19 enacted into California law and then subsequently suspended,
20 so they will not go into effect until 2013. But the two
21 proposals, I think, highlight the fact that there are many
22 collateral rules having to do with NOL carrybacks that exist
23 in federal law that the California Legislature or the Board
24 have not had an opportunity to examine and decide whether
25 they should be part of California law.
8
1 So I've already discussed this with Ms. Rodriquez, and
2 what we would like to do is to have a staff project during
3 this next year to review, to do a comprehensive review of
4 the area of federal NOL carryback rules, and then come back
5 to the Board with a list of what all those items are so the
6 Board can make a decision all at one time on all of those
7 rules.
8 And I'm always kind of reluctant to go piecemeal to
9 the Legislature in a particular area of law. So for that
10 reason, I would like to hold onto these, as I said, and come
11 back at a later time to the Board.
12 ACTING CHAIR MANDEL: Okay.
13 Any questions for Brian on those?
14 MEMBER YEE: Just on the latter proposals.
15 That staff project would then be completed before the
16 effective date of the regulation proposal?
17 MR. PUTLER: Yes. What I would envision is that we
18 would come back at the very latest to the Board, to this
19 board meeting next year, if not sooner.
20 MEMBER YEE: Okay. Thank you.
21 ACTING CHAIR MANDEL: Okay.
22 I don't have any public speakers on this, and I noted
23 Gina nodding in agreement with Brian's comment and giving us
24 a thumbs up for that comment.
25 Then I guess what we have is let's take the -- you
9
1 want to take the three staff proposals as one --
2 MEMBER YEE: Sure.
3 ACTING CHAIR MANDEL: -- at one time, and noting that
4 staff has modified it's Proposal B, like boy, to eliminate
5 the second element that was in it.
6 MEMBER YEE: Okay.
7 ACTING CHAIR MANDEL: Is there a motion?
8 MEMBER YEE: Yes.
9 Move approval of the three staff proposals with that
10 modification.
11 ACTING CHAIR MANDEL: Okay.
12 And I'll second that, with Finance abstaining on both
13 proposals.
14 And as to D and E, do you need something official from
15 us to approve that staff desire for --
16 MR. PUTLER: No, I don't think so.
17 ACTING CHAIR MANDEL: All right.
18 MR. PUTLER: Okay.
19 ACTING CHAIR MANDEL: Thanks, Brian.
20 MR. PUTLER: Thank you very much.
21 ACTING CHAIR MANDEL: With that understanding.
22 Thank you.
23 The next item we have is Item 3, Regulation Matters
24 with, I think, three subitems. The first one we have is --
25 oh, there you are -- the 2011 Rulemaking Calendar.
10
1 MR. KUSIAK: Yes, Madam Chair.
2 Patrick Kusiak, assistant chief counsel Technical
3 Resources Bureau.
4 Item 3a. is the Annual Rulemaking Calendar for
5 submission to OAL. As you are aware, we routinely bring
6 these to the Board every fall for scheduling, really,
7 purposes to put everyone on notice of what projects are
8 either under way or that we intend to initiate in the course
9 of the next calendar year. And, as in the past, we are
10 asking for permission from the Board to, in addition to
11 approving the calendar, to allow us to conduct interested
12 parties meetings, explaining items that are new on this
13 agenda, on this calendar, rather. There are four of those
14 items.
15 One addresses some regulations under the Head of
16 Household Dependent Care credit. The second one is dealing
17 with definitional issues associated with Enterprise Zone
18 Sales and Use Tax credit. The third item is regulation
19 under a Notice of Receiverships. And, finally, the --
20 ACTING CHAIR MANDEL: Payroll Factor Stock Options?
21 MR. KUSIAK: That's correct. Thank you.
22 ACTING CHAIR MANDEL: That's why I have a little paper
23 here.
24 MR. KUSIAK: Yes, ma'am.
25 ACTING CHAIR MANDEL: And as part of approving this
11
1 calendar, it's our standard practice that we are giving
2 permission for interested parties meetings on any of the
3 newly included items and the prior approval for interested
4 parties meetings which are continued and still ongoing?
5 MR. KUSIAK: Correct.
6 ACTING CHAIR MANDEL: Any questions on the Rulemaking
7 Calendar?
8 If not, may I have a motion.
9 MEMBER YEE: Yes.
10 Move approval of the 2011 Rulemaking Calendar.
11 ACTING CHAIR MANDEL: Is there a second?
12 ACTING MEMBER CHAMBERLAIN: Second.
13 ACTING CHAIR MANDEL: Okay. And so no objections.
14 That will be the Board's order.
15 The next item is Proposed Regulation 25136 of 2011.
16 This is Sales Factor: Sales other than sales of tangible
17 personal property in this state.
18 It is a staff report from Ben Miller and possible
19 Board action.
20 Ben.
21 MR. MILLER: Thank you very much, Madam Chair.
22 Ben Miller, counsel, Multistate Tax Affairs, retired
23 annuitant. I just wanted to add that in there.
24 This proposed regulation is to implement the change
25 the Legislature enacted in terms of assigning the sales of
12
1 intangible property now be assigned based upon the benefits
2 received with respect to services in place of use with
3 respect to intangibles.
4 We think it is very important this regulation go
5 forward. 2011 will be the first year it will be effective.
6 But it becomes particularly important because of the
7 legislative action which allows taxpayers to elect the
8 sales-only portion of the three-factor formula. Those who
9 go sales-only, will be under this new regulation. Those who
10 stay with the standard three-factor formula, would be the
11 old cost of performance regulation.
12 But people will need to know what the rules are in
13 order to make an informed election. The election is a
14 one-time, non-revocable election, so we think it's very
15 important to go forward.
16 We have had three interested parties meetings on this
17 matter. I have made a number of changes to our original
18 proposal to reflect those comments. We realize there is
19 still more work to be done in this area.
20 What we are asking now is to pursue the formal
21 regulation process, hearing process. The hearing process
22 itself obviously takes in taxpayer comments. There can be
23 changes made to the legislation as a result of those
24 comments. And I think this would be brought back to the
25 Board for action to be adopted.
13
1 So, if there are any questions about the regulation,
2 I'd be happy to answer them, but request the Board to allow
3 staff to move into the formal rulemaking process.
4 ACTING CHAIR MANDEL: So, just to repeat it, you're
5 seeking authorization to publish what you have now with the
6 draft into the formal rulemaking process, and during that
7 process, people will have the opportunity to comment further
8 on and critique further and seek revisions in the language
9 if that's appropriate.
10 MR. MILLER: Yes.
11 ACTING CHAIR MANDEL: And you're intending that the
12 legislation would come back to the Board for final adoption?
13 MR. MILLER: Final approval.
14 And we recognize that there is a taxpayer basic
15 comment period. There is a requirement that staff respond
16 to those comments made. And, of course, the Board would
17 make a decision as to what changes will be made or not.
18 ACTING CHAIR MANDEL: Okay.
19 Any questions on the regulation?
20 MEMBER YEE: No.
21 ACTING CHAIR MANDEL: I don't have any speakers on
22 this. Nobody is leaping at the podium.
23 Then may I have a motion?
24 MEMBER YEE: I'll move the staff recommendation to
25 move this into the formal regulatory process.
14
1 ACTING CHAIR MANDEL: Okay.
2 Do we have a second?
3 ACTING MEMBER CHAMBERLAIN: And I second.
4 ACTING CHAIR MANDEL: Okay. Any objection?
5 Hearing none, that will be the Board's order.
6 Thank you, Ben.
7 MR. MILLER: Thank you.
8 ACTING CHAIR MANDEL: Subitem c. is Proposed
9 Regulation 19591, Specialized Tax Service Fees, another
10 staff report and possible Board action.
11 And we have someone new. Maybe not new to FTB but to
12 our board meeting, at least this year anyway.
13 Delinda Tomagni.
14 MS. TOMAGNI: Good afternoon. Delinda Tamagni, tax
15 counsel for the Legal Division.
16 This proposed amendment to Regulation Section 19591
17 would establish a specialized tax service fee for the
18 issuance of a limited partnership revival confirmation
19 letter. This would also amend the fees for installment
20 payment programs and taxpayer services to reflect our
21 current cost.
22 We held an interested parties meeting on October 27th.
23 There were no public comments or questions at that time.
24 And so now I am requesting permission from the Board to
25 begin the formal regulation process.
15
1 ACTING CHAIR MANDEL: Any questions on this?
2 MEMBER YEE: No.
3 ACTING CHAIR MANDEL: No.
4 May I have motion.
5 MEMBER YEE: Move the staff recommendation to begin
6 the formal regulation process.
7 ACTING MEMBER CHAMBERLAIN: Second.
8 ACTING CHAIR MANDEL: Motion made and seconded.
9 Any objection?
10 No objection.
11 That will be the Board's order.
12 Thank you.
13 MS. TOMAGNI: Thank you.
14 ACTING CHAIR MANDEL: Item 4 is Administrative
15 Matters, Contracts over $1 million for Board approval. And
16 we have Susan Borgman coming up to present the item, and we
17 have four contracts.
18 MS. BORGMAN: Thank you.
19 I'm Susan Borgman. I'm the director of the
20 Procurement Bureau. And there are four contracts for Board
21 approval that are at various stages of the process, but we
22 need your approval before contract award.
23 The first two have to do with the Enterprise Data to
24 Revenue project, and the first one dealing with the prime
25 solution provider. This contract will obtain the services
16
1 of a prime solution provider to provide an integrated
2 service solution for the FTB's EDR project.
3 The acquisition is being conducted as a
4 solution-based, benefits-funded procurement that will be
5 funded by increased revenue from the State's use of the EDR
6 Solution. The project addresses fundamentally business
7 processes, processing personal income tax and business
8 entity returns, including the underutilization of data and
9 business rules to further streamline and automate our return
10 processing.
11 The timing is critical with this project. If
12 approved, we propose to implement this project in two
13 phases: Phase 1 for personal income tax implementation in
14 January '15, and Phase 2 is the business entity
15 implementation to be implemented in January 2016.
16 The criticalness of this project is we have to work
17 around the filing season so as not to impact our accounting
18 system and collection of revenue.
19 The cost estimate was approximately $213 million, with
20 benefits totaling over $3 billion over the life of the
21 contract. This was estimated when we went through the
22 feasibility study process. However, the actual costs and
23 benefits are dependent upon the winning bid. We anticipate
24 that this contract award will be made in May of next year
25 with a start date of July 1, 2011, for a term of 56 months
17
1 with the additional option years.
2 Currently, we are evaluating proposals and we are in
3 the process of determining whether there is a responsive and
4 responsible bidder to ensure that they have met the
5 thousands of requirements in the EDR RFP, request for
6 proposal.
7 ACTING CHAIR MANDEL: Okay. Any questions?
8 MEMBER YEE: Will it be structured on a benefits
9 basis?
10 MS. TOMAGNI: Yes.
11 ACTING CHAIR MANDEL: We'll go through them and
12 probably take them all at once.
13 MS. TOMAGNI: The next EDR contract is for independent
14 verification and validation consultant services as directed
15 by OCIO guidelines for a project of this scope and size.
16 You must obtain these services so the qualified IV&V
17 consultant provider, who will oversee and perform
18 verification validation services, including quality
19 assurance by the prime solution provider, and to verify that
20 the execution of the contract is consistent with EDR
21 technical requirements.
22 The IV&V contractor will also conduct technical
23 review, gap analysis, and quality assurance of the
24 management requirement deliverables.
25 The cost of this contract is anticipated to be
18
1 $9.4 million, for a term of the same as the prime contract.
2 The next contract, moving off of EDR, is our ETL,
3 Enterprise Tape Library project. This contract is necessary
4 to replace end-of-life ETL components to improve the
5 Enterprise Tape Library which supports our two key
6 accounting systems, TI, transfer information, and BETS, or
7 business entities, and the Distributed Library, which
8 supports FTB's Windows server-based revenue-generating
9 applications such as our billing and collections system.
10 The current ETL system is used to backup our mainframe
11 computer and it's distributed systems, and uses technology
12 that is becoming obsolete, and the tape storage devices are
13 no longer being manufactured.
14 The cost estimate to replace these items is
15 $4.5 million. And, again, timing is critical on this
16 project as well, because we have to work around the filing
17 season.
18 And the last one is regarding the IT Network Refresh
19 project. This project needs funding to replace aging
20 equipment and software that will become end-of-support and
21 hampered by old and inadequate technology. This will reduce
22 the risk that these items will fail and impact our
23 revenue-generating capability. FTB's mission critical
24 e-file and other e-commerce applications also rely very
25 heavily on our network infrastructure.
19
1 The scope of this project replaces switches that
2 record distribution and access layers at FTB's central
3 office and district offices. It is anticipated that the
4 procurement process will be started this month with a cost
5 estimate of $4.5 million.
6 Any questions?
7 ACTING CHAIR MANDEL: Any questions on any of the
8 contracts?
9 MEMBER YEE: No.
10 ACTING CHAIR MANDEL: Okay.
11 May I have a motion on the contracts.
12 MEMBER YEE: Move approval.
13 ACTING MEMBER CHAMBERLAIN: Second the motion.
14 ACTING CHAIR MANDEL: Okay. Any objection?
15 No objection.
16 Hearing none, the contracts are approved.
17 Thank you.
18 MS. TOMAGNI: Thank you.
19 ACTING CHAIR MANDEL: We are now on Item 5, which is
20 the Taxpayer Bill of Rights hearing.
21 This is the time set for the Board's annual Taxpayer
22 Bill of Rights hearing as required by Section 21006 of the
23 Revenue and Taxation Code. The purpose of this hearing is
24 to allow taxpayers and tax practitioners the opportunity to
25 present directly to the Board any proposals they may have
20
1 for changes in existing state income tax law or for
2 improvements in any FTB publications or services to the
3 public.
4 FTB staff is available to respond to questions which
5 may be raised as a result of taxpayer proposals. Present
6 are: Selvi Stanislaus, Executive Officer; Geoffrey S. Way,
7 Chief Counsel; Brian Putler -- we don't have enough chairs
8 for him -- Brian Putler, Director of the Legislative
9 Services Bureau; and Steve Sims, Taxpayers' Rights Advocate.
10 Staff will analyze the fiscal and administrative
11 consequences of the proposals.
12 Steve, do you have some introductory comments before I
13 call the names of the people who have indicated they want to
14 make a presentation?
15 MR. SIMS: Just general statements on procedure.
16 What we will do is provide formal written responses to
17 all the issues that are raised. And I'll state that we hope
18 to have them by -- we will have them by February 1st.
19 ACTING CHAIR MANDEL: Okay.
20 Okay. Great.
21 I'm going to call up the individuals who've indicated
22 that they wanted to address the Board, and to please come
23 forward when your name is called and present your proposals.
24 And you'll each have about three to five minutes to make
25 your presentation.
21
1 I have Roland Boucher for United Californians for Tax
2 Reform.
3 Roland.
4 MR. BOUCHER: Good morning. Roland Boucher, United
5 Californians for Tax Reform, formerly a member of the
6 California Assembly of Legislators.
7 I'm losing my voice already. I haven't started to
8 speak. We have come back, come here and also to the
9 Legislature -- about ten years, since Kathleen Connell was
10 Treasurer -- asking for improvements to the short tax form,
11 542EZ, and we have received very good results, and we think
12 that we really have a nice tax form. But there is one more
13 change we'd like to make.
14 And it's come to my attention -- a couple of years
15 ago, I guess, I was here before on the same subject -- that
16 people who file a federal tax return using the short form at
17 the federal level because of the value of the standard
18 deduction and find that the state standard deduction is
19 about half size. And so they could either lose some money
20 or they could go dig out their records and come up with
21 records just for the State of California. We don't think
22 that's right.
23 And so we made a proposal to increase the standard
24 deduction to match the feds, and to pay for this by
25 essentially just removing the 1 percent tax bracket and
22
1 start at 2. We had a number of ways to do it when we first
2 started, but this is the one the Legislature seemed to like
3 the best.
4 We also have provided the Franchise Tax Board with an
5 analysis of our method of analysis. And also on a backed
6 bill, so it's ready to go. We also have contacted a member
7 of the Legislature to carry this legislation.
8 So, to summarize it, what we found is that if we
9 remove the 1 percent tax bracket and go ahead and start at
10 2, we can essentially double the standard deductions and be
11 revenue neutral. And we are revenue neutral almost exactly
12 across all percentiles, that is, percentagewise. I think
13 the farthest out we are is maybe a tenth of a percent.
14 And in working with Franchise Tax Board people last
15 year to try to find a minor discrepancy between our two sets
16 of numbers, we found that the Franchise Tax Board
17 publication, the statistics of income, did not include
18 tables for children who fall under the deduction of their
19 parents. And since we didn't have that information, we
20 couldn't include it, and so they had to supply it to us
21 separately, and they did, and our numbers came in pretty
22 close.
23 So that's about the story. I'd be happy to answer any
24 questions.
25 ACTING CHAIR MANDEL: Thank you.
23
1 Any questions from the members for Mr. Boucher?
2 No? Okay.
3 Thanks. Thanks for coming. Nice to see you.
4 MR. BOUCHER: Thank you.
5 ACTING CHAIR MANDEL: The next one that I have is
6 David Feldman from ZF Micro Solutions.
7 Mr. Feldman. Thank you.
8 MR. FELDMAN: Yes.
9 I'm CEO of a company that is currently in Chapter 11
10 bankruptcy because we were sued by a -- older employees who
11 are now unemployed. We were sued by two companies that have
12 been transacting intrastate business in California for more
13 than ten years each, have offices, employees, phone numbers,
14 fax numbers, et cetera. I reported these companies to the
15 Franchise Tax Board three years ago.
16 I have provided hundreds of pages of information.
17 I've never been contacted by anyone unless I called. And
18 usually the answer I got -- I'm sorry -- this is very hard
19 for me. I had to lay off a lot of people and I am in
20 personal bankruptcy as well.
21 I have never gotten called back when I have tried to
22 contact the investigators. I have provided depositions, all
23 the facts, too. I've been told that they can't talk to me
24 because of taxpayer privacy concerns.
25 The companies that I've reported are not taxpayers.
24
1 That's why I reported them. We are taxpayers. The company
2 has been a taxpayer. All of the shareholders who have been
3 sued as part of this, myself included, I've been paying
4 taxes, started three companies in California, and I am now
5 bankrupt because of this.
6 And I'd just like to know -- I'm a percipient witness.
7 I can understand if someone contacts an investigations group
8 and says, "I think that guy isn't paying taxes because he
9 works as a janitor and drives a new Mercedes every year."
10 That's not the case here. These people were on the board of
11 directors of our company. I have intimate knowledge. I'm a
12 percipient witness, and no one calls to ask me for
13 information.
14 So I have a proposal. And I did have some cooperation
15 from two people at the Franchise Tax Board. I understand
16 Brenda Kelly has retired?
17 ACTING CHAIR MANDEL: Yes. She worked in the Taxpayer
18 Advocate's Office, yes.
19 MR. FELDMAN: A wonderful person. She really tried to
20 help when I could not get help from anyone else. And she
21 and Doug Davis both wrote letters that were presented to the
22 court. They looked at the evidence that I sent them and
23 they said, "From everything we can see, these people should
24 have been paying taxes."
25 We took that to the court. The court said, "Well, if
25
1 the Franchise Tax Board isn't doing anything about this, we
2 are not going to rule against them, and they can go ahead
3 and use the courts."
4 So my proposal is a simple one: a law which says that
5 if you are transacting intrastate business, have never filed
6 with the Secretary of State, have never filed a return, and
7 never paid a dime in taxes, you can't use the courts.
8 I would just like to see a simple change that mandates
9 that corporations present either a letter of good standing
10 or a letter of exemption saying that they are not required
11 to register to the courts before they're allowed to proceed
12 with their lawsuit or with a defense against a lawsuit.
13 Fairly simple.
14 THE COURT REPORTER: Sir, are you saying "intrastate"
15 or "infrastate"?
16 MR. FELDMAN: Intrastate.
17 ACTING CHAIR MANDEL: I-n-t-r-a?
18 MR. FELDMAN: Yes. I-n-t-r-a. They have offices,
19 they've hired attorneys, CPAs, executive search firms.
20 They're on the boards of several companies in California.
21 They're actual investors. And I believe that's intrastate
22 business.
23 ACTING CHAIR MANDEL: Thank you.
24 MR. FELDMAN: Any questions?
25 ACTING CHAIR MANDEL: Any questions from the members
26
1 for Mr. Feldman?
2 MR. FELDMAN: If you could just suggest who I might
3 talk to, I'd appreciate it.
4 MR. SIMS: Yes.
5 What we could do is we can re-establish contact with
6 my office, more directly, with myself.
7 ACTING CHAIR MANDEL: Steve Sims, he is our taxpayer
8 advocate.
9 Thank you for coming, Mr. Feldman.
10 MR. FELDMAN: Thank you for your time.
11 ACTING CHAIR MANDEL: Vicki Mulak from the California
12 Society of Enrolled Agents.
13 MS. MULAK: Good afternoon, and thank you for allowing
14 us the opportunity to present today at the Taxpayer Bill of
15 Rights meeting. We have been coming for a number of years
16 ourselves, and we did submit written documents, and we are
17 hoping that you're all enjoying our new logo that we hope
18 will be crossing your desks many times in the future.
19 And we did something a little different this year than
20 what we've done in past years in that we surveyed our
21 membership to be sure that it wasn't just the select chosen
22 few that were putting forth their concerns and
23 recommendations, but that we really had a sense of what our
24 society as a whole was looking at as recommendations for the
25 Franchise Tax Board today.
27
1 We sent out about almost 3500 electronic surveys, and
2 we got about a 10 percent return, which you know is very
3 good for a survey. And so we tried to consolidate and put
4 it all together in our written comments, and we came up with
5 six proposals, six recommendations.
6 And our very first one is -- I hope it's focused
7 enough -- and I think it's going to become probably one of the
8 main themes of our legislative and reach-out and thrusts as a
9 society, and it has to do with the problem with conformity in
10 California, which has become really unmanageable.
11 I have been speaking on California tax law to our
12 various chapters for ten years, and I would say this was
13 probably the roughest ride that we've had this year, because
14 a lot of what the Legislature was doing was also interacting
15 with the propositions that were on the November ballot, and
16 we had the situation with the Anna Wells and Prop 24, which
17 kind of resolved itself in favor of the budget legislation.
18 But the one that is concerning us in our first of six
19 is the conformity and all of the many facets and aspects of
20 the Conformity Act that was passed last April that now is
21 facing possible necessity to be re-enacted or has been
22 voided and just a lot of the unsettling that is for
23 taxpayers to deal with that.
24 I did briefly glance at the FTB Tax News, the December
25 issue, and I don't even think the conformity issue, the
28
1 conformity article really touched upon some of these deeper
2 issues of possibly needing to re-enact. And we know that
3 the Legislature does have a senator -- it should be a single
4 bill -- but still a lot of it unsettled.
5 And I know that we have mentioned in previous letters
6 that we're just continuously migrating towards that
7 stand-alone California tax return. If we have a two-thirds
8 vote requirement now, it looks like future conformity is
9 even going to be more difficult to enact.
10 So, we would just like conformity, and we would like
11 it with the same dates that the federal conforms, not with
12 some provisions retroactive, some retroactive with
13 differences, then a lot of things not adjusted, so that we
14 have all of these major federal tax acts for two years, 2008
15 and 2009, that California wouldn't conform to, even if SB
16 401 later does stand.
17 The second item we brought up was POA notification.
18 We'd like to see consistency and shooting for that hundred
19 percent that the power of attorney on file gets a duplicate
20 copy of every piece of correspondence that's going to the
21 taxpayers. Maybe that EDR is going to finally help us land
22 there, but we want to bring that in front of you all today.
23 It's a very important thing for us that taxpayers are
24 able -- that we are able to manage our workloads and
25 represent them in the best manner possible.
29
1 The third item, we actually had a comment before you
2 formally started today by Franchise Tax Board staff person
3 Anne Miller regarding the hold-time message, that what we
4 were requesting was, not only that you have the ability to
5 give us call back, but that you would tell us how long the
6 wait time is so you can make a decision.
7 And she said that that is on the regular taxpayer 800
8 line, but not on the practitioner hotline. We think it
9 should be everywhere -- and we really thank you for the
10 call-back provision -- but then we'd know for sure whether
11 we should use it or not.
12 Our fourth recommendation has been brought by others
13 before this group, and that's for the combined Franchise Tax
14 Board statement of information for Secretary of State
15 filing. Many other states already do this simplified
16 procedure. I know that there was some concern over knowing
17 what the taxpayer desire was for address of record, but we
18 really think that's a very minor problem in relationship to
19 how many corporations suspend, kind of inadvertently, every
20 year for failure to file their statement of information.
21 We had a piece in there, a collection piece about
22 proposal to increase the lien threshold, filing threshold.
23 We couldn't really find that there was a place where you had
24 determined what that was except from an administrative
25 perspective, but that in these times, these 12 percent
30
1 unemployment times, and taxpayers are owing money, that
2 maybe it was time that that threshold be increased.
3 And our last one, and we know it's a concern for the
4 Franchise Tax Board as well, is that items that require
5 account resolution have a little faster processing time.
6 Amended returns and protests are the ones that our members
7 consistently mentioned in this electronic survey. I have
8 been told by the hotline to expect at least a year for an
9 amended return to process. I did just do an amended return
10 for a corporation the other day for the IRS, and we had a
11 30-day processing, and we received a $60,000 refund for a
12 corporation with an NOL carryback. So I would just -- and
13 it wasn't the quick carryback, it was the "X" carryback. So
14 we just wanted to bring that front and center as well.
15 We do want to thank the Franchise Tax Board, though,
16 for recent improvements, and the two we mentioned were the
17 MyFTB Account which came out and the provisional payment
18 plan.
19 And I am done.
20 Thank you very much for your consideration of our
21 recommendations.
22 ACTING CHAIR MANDEL: Thank you.
23 Gina Rodriquez, Spidell Publishing.
24 MS. RODRIQUEZ: Thank you, members.
25 Gina Rodriquez for Spidell Publishing.
31
1 First, I just wanted to thank, recognize two
2 employees, Patrick Kusiak and Brian Putler, for their
3 continued support of our constant suggestions. We do
4 appreciate all their work and the work their staff does as
5 well.
6 With respect to our 2009 proposal of having better
7 coordination with the Secretary of State, there is a
8 statement information program that Vicki just talked about.
9 You did reply last year in February -- excuse me -- February
10 of this year that said you are extremely disinclined to see
11 these SIs -- you call them SIs -- filed with income tax
12 returns, citing the problems that the FTB has experienced
13 with allowing taxpayers to report use tax on their income
14 tax returns.
15 You also explained in detail the information exchange
16 policies you have with the Secretary of State. However, in
17 light of a significant increase in business entity
18 suspensions and the fact that other states do allow such
19 filings, I respectfully request that you revisit this
20 proposal. And I provided in my material a common scenario
21 of what a nonprofit corporation has to go through just to
22 figure out how to revive.
23 California's fragmented tax system can be made more
24 seamless to taxpayers if there is more communication among
25 the agencies. And, of course, Spidell's editors are willing
32
1 to help coordinate this effort in any way we can.
2 For 2010, I'm going to ditto what Vicki said. We just
3 have one proposal regarding conformity. We need to look at
4 reverting back to a stand-alone return. We used the
5 stand-alone return in California until 1987. Back then, we
6 had conformed to the Tax Reform Act of '86. That gave the
7 Legislature a pretty good opportunity to streamline filing,
8 and so we switched to a piggyback return. So now we start
9 with federal AGI and then make adjustments.
10 And while we acknowledge that there are many, many
11 income and deduction items that are the same for federal and
12 state purposes, the differences have become insurmountable,
13 and the days, frankly, of wholesale conformity are long
14 gone. This leaves taxpayers vulnerable even with the
15 simplest return.
16 I know the Board of Equalization had a case last month
17 dealing with a taxpayer who inadvertently and erroneously
18 used California AGI to compute a charitable deduction
19 instead of federal AGI.
20 We have made the suggestion at quite a few prior Bill
21 of Rights hearings, and I know the FTB has always resisted,
22 saying it would be duplicative to go back to a stand-alone
23 and increase complexity for taxpayers. They also stated
24 that federal conformity is the best solution to simplify
25 filing requirements, and we couldn't agree more. Federal
33
1 conformity is the best solution, but it is not a practical
2 solution. The Legislature has refused to provide taxpayers
3 with an annual conformity bill and, with Prop 26, passage of
4 a conformity bill is virtually impossible.
5 Taxpayers have the right to understand their state and
6 federal differences; however, the burden placed on them to
7 understand and identify all these new differences is simply
8 too much to ask for a self-assessment tax system. This is
9 especially true because the FTB is not even able to identify
10 all the state and federal differences in their forms and
11 instructions due to the volume, the sheer volume.
12 As a result, the FTB puts an incomplete list along
13 with a statement in some of their more common instructions
14 that explain state and federal differences, stating that
15 it's merely a summary of California tax law, and they're
16 only including information that's most useful to the
17 greatest number of taxpayers in the limited space available
18 and that they can't possibly include all requirements in the
19 tax booklets.
20 We at Spidell, we publish our complete but abbreviated
21 list for tax professionals. It does explain the differences
22 in complete detail, but we do provide authority to cites,
23 and that list is 15 pages long, so it's a little outrageous.
24 Tuesday of this week, Congress sent HR 4783 to the
25 President. If the President signs that bill, it will create
34
1 two state-federal differences right off the bat, affecting
2 2009 returns. Yet California has no practical way to react
3 with a specified date locked at January 1st, 2009, and the
4 Legislature refuses to pass the annual conformity bill. So
5 this leaves taxpayers unaware of many state and federal
6 differences.
7 The current piggyback return is unmanageable. I
8 think, as Vicki stated, it's unfair to taxpayers, and it's
9 costly to those taxpayers and the government. And, yes, it
10 would take a whole lot of effort on the part of the
11 government and taxpayers alike to return to a stand-alone
12 form, but may end up producing greater compliance with tax
13 laws and likely a fairer tax system.
14 And this is what we would request that the FTB explore
15 and make a determination.
16 Again, thank you for all of your support.
17 ACTING CHAIR MANDEL: Thank you, Gina.
18 Is there anyone else who would like to address the
19 Board on the Taxpayer Bill of Rights hearing?
20 Okay.
21 Seeing none, thank you. Thank you, Steve.
22 Item 6, members, is off the agenda, so we are now on
23 Item 7, which is Executive Officer's time.
24 Selvi.
25 MS. STANISLAUS: Thank you, Madam Chair. I do have a
35
1 few comments to make.
2 First, I would like to congratulate Cathy Apker. I
3 see her over there. She is executive vice president for
4 Enrolled Agents. She is retiring after eleven years of
5 admirable service. She's a great fan of FTB.
6 And thank you for your friendship and partnership,
7 Cathy.
8 Next, I would like to use my time to briefly thank the
9 Board and Ms. Mandel for their service.
10 Honorable Controller, congratulations on your
11 re-election.
12 While you may be a fiscal watchdog, making difficult
13 choices with more than a hundred billion in public funds
14 under your control, you have a heart for California
15 taxpayers.
16 During your four years on our Board, e-filed returns
17 increased to 11 million. More than 134,000 Californians
18 saved time, money, and headaches with your innovative
19 ReadyReturn. More than 800,000 Californians took advantage
20 of CalFile, more than 640,000 low-income, senior, disabled,
21 and military taxpayers were assisted through VITA sites
22 located up and down the state.
23 And you tirelessly advocated for working families and
24 seniors, ensuring that they all get the tax credits,
25 especially the federal Earned Income Tax Credit.
36
1 And, more importantly, on April 15th, you bonded with
2 our employees with an impromptu sorting contest with a KCRA
3 reporter to a "meet-and-greet" with employees.
4 You have earned the respect and well wishes of all of
5 us here. We look forward to working successfully for the
6 next four years with you and with Ms. Mandel.
7 Board Member Yee, congratulations on your re-election
8 as well. You tirelessly advocate for taxpayers by ensuring
9 our tax laws are interpreted and applied fairly. You not
10 only understand our personal and income tax and corporate
11 tax, you must also understand each and every BOE tax, which
12 are what? About 28 different taxes?
13 During your more than 25 years of public service, you
14 demonstrated again and again your passion for customer
15 service through your outreach efforts and willingness to
16 listen to the public at meetings such as ours, and you
17 displayed your passion here during your back-to-back terms.
18 So, thank you for your service, Board Member Yee.
19 And, Board Member Matosantos, who is not here today --
20 she is with Governor-elect Brown -- your year of service is
21 ending, too, and what a difficult year it has been.
22 Whether supporting BCPs or granting us limited
23 exemptions to the hiring freeze or helping us with our
24 furloughs, you consistently have kept FTB's best interests
25 at heart.
37
1 So, thank you for your service, too.
2 So, finally, I want to thank all the employees here.
3 2010 was really not a good year for all of us: three days of
4 furloughs, 15 percent pay cuts, and hiring freezes. But
5 through all this adversity, they processed returns,
6 performed audits, and collected delinquent accounts.
7 I want the record to reflect how much I, the Board,
8 and my management team appreciate their hard work,
9 dedication, and service.
10 Thank you.
11 ACTING CHAIR MANDEL: Thank you, Selvi.
12 And I'll be sure to convey your comments to the
13 Controller.
14 So, thank you very much. I'll convey them to him.
15 We're now on Board Members' time. This is the
16 members' opportunity to raise other matters of interest.
17 Do the members have anything they would like -- I have
18 a couple of things. But anything? Okay.
19 It's that sad yet happy time again. I have a couple
20 of retirement resolutions to present. And what I'm going to
21 do, because it is retirement time for these individuals, and
22 since maybe all of his life he has been introduced as "last
23 but not least," we are going to go in reverse alphabetical
24 order.
25 So, the first one that I have here today is for
38
1 Carlos Zamarripa, who is somewhere out there in the
2 audience, I trust.
3 Carlos?
4 Where is he hiding? There he is.
5 And he's here with his wife Connie and sister Elsa, so
6 he's sharing the presentation of happiness.
7 Let me just tell everybody a little bit about Carlos
8 in this Resolution.
9 Carlos is the Director of the Tax Systems Modernization
10 Bureau here at the FTB, and here is what it says:
11 WHEREAS, Mr. Carlos Zamarripa faithfully served the
12 People of the State of California for the past thirty-five
13 years, most recently as Director of Franchise Tax Board's
14 Tax Systems Modernization Bureau and Project Director of the
15 Enterprise Data to Revenue, EDR, project; and
16 WHEREAS, during Mr. Zamarripa's tenure in the Audit
17 Department -- Audit program -- excuse me -- he advanced to
18 Director of the Water's-Edge Tax Legislation for Multistate
19 Corporations; and, as a result of his technical expertise,
20 intelligence, and leadership, he was chosen to lead the
21 Water's Edge implementation, which attracted worldwide
22 attention; and
23 WHEREAS, under Mr. Zamarripa's leadership, FTB
24 implemented the Pass-Through Audit Support System, which was
25 the first in the nation to trace the ownership and income of
39
1 a partnership to the partners; and
2 WHEREAS, Mr. Zamarripa was appointed Project Deputy
3 Director for the California Child Support Automation System;
4 where he successfully directed California's largest
5 technology project to develop a single statewide child
6 support system, which provided federal certification and
7 penalty relief of $200 million; and
8 WHEREAS, Mr. Zamarripa ends his noteworthy career as a
9 key driver to FTB's Information Technology strategic vision
10 by leading the EDR project, which is now in the procurement
11 phase; which, upon implementation, EDR will provide ongoing
12 benefits of almost $1 billion annually by modernizing the
13 department's aging tax systems.
14 WHEREAS, Mr. Zamarripa ends his career as he began,
15 under a Jerry Brown administration; while the department
16 loses a great friend and mentor to many, and as it gains
17 untold email storage when he signs off for the last time,
18 Mr. Zamarripa moves on to a better season in life that will
19 allow more time with his wife, two adult children, and one
20 adorable granddaughter; and, more free time to pursue
21 personal endeavors, such as keeping tabs on the Cowboys, his
22 favorite NFL team, and his passion for running.
23 NOW, THEREFORE, LET IT BE RESOLVED, today, by the
24 Franchise Tax Board that we recognize and thank Mr. Carlos
25 Zamarripa, on the occasion of his retirement, for his
40
1 professional and personal dedication to the Franchise Tax
2 Board and, most importantly, to the People of the State of
3 California.
4 (Presentation by Ms. Mandel.)
5 MR. ZAMARRIPA: I just wanted everybody to know that
6 I'm just --
7 MS. STANISLAUS: Carlos, please use the mic so
8 everyone can hear.
9 MR. ZAMARRIPA: I just want to thank the Board for
10 always being supportive of the Franchise Tax Board
11 departments. It's that support that allowed me to work on
12 all of those exciting and challenging opportunities such as
13 the projects and legislation.
14 So, thank you very much.
15 ACTING CHAIR MANDEL: You're welcome.
16 Thank you, Mr. Zamarripa, for your service.
17 Now I have one for Bill Jones who is here with his
18 wife Mary Laurence.
19 Bill, stand up and show everybody.
20 Bill is our Chief of the Accounts Receivable
21 Management Division.
22 WHEREAS, Mr. Bill Jones faithfully served the People
23 of the State of California for the past thirty-five years,
24 most recently as the Accounts Receivable Management Division
25 Chief for the Franchise Tax Board; and
41
1 WHEREAS, Mr. Jones, as Division Chief, oversaw the
2 accounts receivables for the second largest tax department
3 in the United States, and who managed the successful
4 transition from a paper-based collection system to a
5 $35 million computerized Accounts Receivable Collection
6 System, which the Board notes with satisfaction has paid for
7 itself multiple times; and
8 WHEREAS, Mr. Jones participated in the Compliance 2000
9 strategic planning effort that established the bold vision
10 for the new technologies FTB currently uses each day and
11 referred to by an alphabet soup of acronyms: ARCS, PASS, and
12 INC; and
13 WHEREAS, Mr. Jones tirelessly gives back to his
14 community through his volunteer work with nonprofit
15 organizations such as the National Association of Black
16 Accountants, where he served as president of the Sacramento
17 chapter; as co-founder of "Rites of Passage," which counsels
18 teenage males in the obligations of adulthood; as technical
19 repairman, who fixed computers donated to his church and
20 provided basic personal computer skills workshops; as
21 participant in organizing Haitian earthquake relief through
22 his church, as a tutor to elementary and middle school
23 students; and, as a part-time musician, performing before
24 dignitaries like Governor Schwarzenegger and Senator
25 Darrell Steinberg; and
42
1 WHEREAS, Mr. Jones now takes the first step of an
2 exciting new season of life, which leaves him with ample
3 time to meddle in the lives of his three children; to
4 strategize various avoidance tactics to combat his
5 ever-expanding "honey-do" list; and, to pursue more
6 interesting endeavors, such as traveling and bicycling.
7 NOW, THEREFORE, LET IT BE RESOLVED, today, by the
8 Franchise Tax Board that we recognize and thank
9 Mr. Bill Jones, on the occasion of his retirement -- I have
10 this upside down -- on the occasion of his retirement, for
11 his professional and personal dedication to the Franchise
12 Tax Board and, most importantly, to the People of the State
13 of California.
14 Bill.
15 (Presentation by Ms. Mandel.)
16 MR. JONES: I would like to express my utmost
17 appreciation to the Franchise Tax Board members and to
18 Selvi Stanislaus, to the government counsel members headed
19 by our chief counsel here and there, and my colleague, the
20 division chief.
21 It has been a wonderful career, and I am especially
22 honored to have had the opportunity to work with people of
23 such quality as Carlos Zamarripa in our office.
24 So, thank you very much. And I will keep you in my
25 memories.
43
1 ACTING CHAIR MANDEL: Thank you.
2 We have no closed session today. So we are now
3 adjourned.
4 Thank you.
5 (Meeting adjourned at 2:32 p.m.)
6 ---oOo---
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1 REPORTER'S CERTIFICATE
2
3 STATE OF CALIFORNIA )
) ss.
4 COUNTY OF SACRAMENTO )
5
6
7 I, SANDRA VON HAENEL, certify that I was the
8 official Court Reporter for the proceedings named herein, and
9 that as such reporter, I reported in verbatim shorthand
10 writing the named proceedings;
11 That I thereafter caused my shorthand writing to
12 be reduced to typewriting, and the pages numbered 1 through
13 44, inclusive, constitute a complete, true, and correct
14 record of said proceedings:
15
16 IN WITNESS WHEREOF, I have subscribed this
17 certificate at Sacramento, California, on the 18th day of
18 December, 2010.
19
20 ___________________________
SANDRA VON HAENEL
21 CSR No. 11407
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